1-Star Stocks Poised to Plunge: AutoZone?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, auto parts retailer AutoZone (NYS: AZO) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at AutoZone's business and see what CAPS investors are saying about the stock right now.

AutoZonefacts

Headquarters (founded)Memphis, Tenn. (1979)
Market Cap$14.7 billion
IndustryAutomotive retail
Trailing-12-Month Revenue$8.4 billion
ManagementChairman/CEO William Rhodes, III
CFO William Giles
Return on Capital (average, past 3 years)37.6%
Cash/Debt$116.8 million / $3.5 billion
CompetitorsAdvance Auto Parts
O'Reilly Automotive
Pep Boys

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 31% of the 555 members who have rated AutoZone believe the stock will underperform the S&P 500 going forward.

A couple of months ago, one of those Fools, uvapan05, nicely summed up the long-term bear case for our community:

[AutoZone's] management has identified two factors as having statistically significant correlation with their sales growth: (1) miles driven and (2) # of vehicles 7 years or older on the road.

Regarding point 1: the average price of gasoline is a significant factor in determining the number of miles driven for average people. While prices have declined since the end of their last fiscal quarter, it has been increasing recently and likely only going to continue to grow. ...

Regarding point 2: as fuel costs take a greater chunk out of consumers' wallet, they have less money to potentially put toward a new vehicle. Therefore, the number of 7 yr vehicles on the road may continue to trend in [AutoZone's] favor.


These 2 points sort of cancel each other out in the short term, but I think that in the long term [AutoZone's] prospects are dimming. Increasing fuel costs are almost a certainty, and should the economy continue to see signs of improvement, people may begin to ditch their old clunkers and embrace new automobiles.

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At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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